Shares of exporter Corona are down 22%. Why does Jefferies advise to buy them?

The sell-off in shares of Constellation Brands, distributor of Modelo and Corona beer, has gone too far, says Jefferies analyst Kaumil Gajrawala. He upgraded the rating of the beer company's securities, recommending investors to buy them. In his opinion, despite weak demand for beer, the company maintains a strong balance sheet and recovery potential - especially in the second half of the year.

Shares of beer company Constellation Brands have fallen 22% since the beginning of the year, but the sell-off looks excessive, says analyst Kaumil Gajravàla of Jefferies. About it writes CNBC. 

Gajravàla upgraded the stock from a "Hold" rating to a "Buy" rating and increased the target price by $11 to $205 per share, implying a potential upside of nearly 19% from the closing price of the last trade.

Constellation Brands shares of Constellation Brands grew 1.7% in early trading on July 7 following the upgrade. 

The reason for the updated rating was the company's report on quarterly earnings and revenue, which "fell short" of Wall Street forecasts, the channel writes. The financial performance was dragged down by weak demand for beer and aluminum duties, CNBC explains. 

"Of course the market is struggling, but there are no brand issues. Hispanics are drinking less beer - the reasons for that are well known [the decline in Hispanic customers due to immigration measures and protests - editor's note]. But that won't always be the case. The forecast assumes that negative trends will turn positive, the wine segment will turn profitable, and the comparables will start to improve at an accelerating rate. A strong balance sheet gives the company time," the analyst wrote in a note to clients.

Gajrawala remains confident that the company has the potential for recovery. He points to forecasts that suggest an improvement in the second half of the year and the potential for a recovery in consumer demand.

He noted that Constellation's wine and spirits brands posted growth in the first quarter despite challenges in the industry. 

"In our opinion, Constellation shares are now too cheap for such a good company, which has every chance for a better future. The securities may not return to previous valuations anymore, but we think the sell-off has gone too far. When the pressure eases, the recovery should accelerate and push the quotes up. The wine business is entering profitability, cash flows are strong and share buybacks are accelerating," the analyst wrote.

Most analysts following Constellation are optimistic: according to data from LSEG, 16 out of 26 analysts recommend the stock as a Buy (Buy and Overweight), with 10 of them recommending a Hold. The average share price target suggests a potential upside of about 23%.

This article was AI-translated and verified by a human editor